Correlation Between 374Water Common and Federal Signal

Can any of the company-specific risk be diversified away by investing in both 374Water Common and Federal Signal at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining 374Water Common and Federal Signal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 374Water Common Stock and Federal Signal, you can compare the effects of market volatilities on 374Water Common and Federal Signal and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in 374Water Common with a short position of Federal Signal. Check out your portfolio center. Please also check ongoing floating volatility patterns of 374Water Common and Federal Signal.

Diversification Opportunities for 374Water Common and Federal Signal

0.55

Correlation Coefficient

374Water Common  Federal Signal

Very weak diversification

The 3 months correlation between 374Water and Federal is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding 374Water Common Stock and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and 374Water Common is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on 374Water Common Stock are associated (or correlated) with Federal Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Signal has no effect on the direction of 374Water Common i.e., 374Water Common and Federal Signal go up and down completely randomly.

Pair Corralation between 374Water Common and Federal Signal

Given the investment horizon of 90 days 374Water Common Stock is expected to under-perform the Federal Signal. In addition to that, 374Water Common is 2.29 times more volatile than Federal Signal. It trades about -0.18 of its total potential returns per unit of risk. Federal Signal is currently generating about -0.13 per unit of volatility. If you would invest  9,202  in Federal Signal on December 29, 2024 and sell it today you would lose (1,684) from holding Federal Signal or give up 18.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

374Water Common Stock  vs.  Federal Signal

374Water Common Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days 374Water Common Stock has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Federal Signal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Signal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with 374Water Common and Federal Signal

The main advantage of trading using opposite 374Water Common and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 374Water Common position performs unexpectedly, Federal Signal can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Federal Signal will offset losses from the drop in Federal Signal's long position.

The idea behind 374Water Common Stock and Federal Signal pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.